Remember how we dreamt of having a Startup as a college student? First, we’ll get a good crazy idea that fits well in a ballooning sector… then we’ll ask a corporate wizard- someone who has graduated from IIT AND IIM AND has been an investment banker, to join as a co-founder… then we’ll pitch this idea to an investor and get money to execute it (We might not have a buz. model from day 1 but we’ll get there eventually)… and when we finally have a buz. model, we’ll raise more money… and when we’ve found product-market fit, we’ll raise some more… and EVERY time we feel we don’t have enough money, we’ll raise again…
WELCOME to BharatPe- a Startup that has been living the fantasy. The circles that you see below- they’re a proportionate representation of the startup’s net worth through different investment rounds right up to its unicorn funding round in Aug'21...
Found in 2018 by engineering student Shaswat Nakrani and IIT-IIM grad, ex-CFO of Grofers- Ashneer Grover, BharatPe kick started operations with a seed funding of $2 Mn…
Their product was simple: Ek Bharat, Ek QR- allowing merchants to receive payments from any e-payments app through a single QR code. That’s all. This idea brought the startup zero revenue and a lot of merchant level payments data.
In the next 2 years BharatPe would ultimately find its buz. model in issuing customized micro loans to their merchant base. It would raise $15 Mn in Series A to kick start the loan buz. A year later, it would raise another $75 Mn in Series B after achieving an initial success by clocking an over INR 100 Cr ($13 Mn) of loan disbursement to 20K merchants with less than 3% in bad loans.
In the pandemic year, it would use the money raised above to grow its loan buz. by 10x and its payment buz. by 5x.
Outcome? More money of course. In the beginning of 2021, BharatPe would raise another $108 Mn in Series D, this time with a commitment to raise its loan book to INR 5000+ Cr by 2023.
Every time their idea worked, Grover and Nakrani would go back to their investors, show them a brighter future for the Company and raised more money at higher valuations. How very dreamy! Right?
So, after BharatPe raised its Series D, we thought that’s enough. The startup had a robust product, it had achieved a product-market fit and it had the money it needed to make it REALLY big.
But in Jun’21 the Startup got its hands on a Small Finance Banking license (SFB) by taking over PMC bank and this changed everything, again-
In an industry where the entry barriers are high, through this deal, BharatPe managed to bypass the competitive challenges it was set to face for several years before it would become eligible for a banking license. Now it has over 1 year to create India’s first truly digital bank before any other Fintech startup is even eligible to obtain an SFB license.
So, you can now guess what happened next…
With the SFB license in hand, BharatPe went back to its investors for more money and brought back a whopping $370 Mn at a 3x valuation.
The big question
Isn’t it perplexing? On one side we have BharatPe, a star-studded Startup that has the world to look forward to. And on the other side there’s the fraud-hit PMC Bank that had to wait for almost 2 years to get a buy-out package. It was PMC Bank that held the SFB license and ran over 100 bank branches. It could accept deposits and issue secured loans which no startup could. And yet, this license got sold for a total of INR 900 Cr at the back of which BharatPe could raise INR 2,700 Cr.
This phenomenon is actually very common in the corporate world. Companies that have failed once or are hit by fraud are simply left at the mercy of relief packages by other corporates that often come at a paltry amount.
But Why? Which one do you think makes sense (just click one option to submit your response):
This article is a part of August'21 edition of our Startup Newsletter. Here's the complete publication: